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Strong Bookings, AI Monetisation and Margin Gains; Recovery Still Uneven:

HCLTech delivered a healthy Q2FY27, with services revenue growing 3.0% QoQ CC (2.3% organic), supported by a broad-based execution and Advanced AI traction. Record H1 bookings, including Q2 TCV of USD 3.3 Bn (+27% YoY), improve medium-term visibility, although macro uncertainty and weak discretionary spending persist. Advanced AI revenue grew 28.4% QoQ to USD 219 Mn, with AI featuring in every large deal.

AI-led deflation in traditional services is being offset by market-share gains and incremental AI opportunities, though sustainability remains uncertain. EBIT margin expanded 131 bps QoQ to 18.2%, aided by efficiency and a higher-margin AI mix. FY27 revenue guidance was revised to 2.5–4.0%, while the organic growth midpoint remains broadly unchanged after acquisitions. We remain positive on execution, bookings and AI monetisation, but cautious on broad-based demand recovery. Key monitorables include organic growth acceleration, deal conversion and AI monetisation’s ability to offset productivity-led revenue deflation. We retain our ‘ADD’ rating and TP of INR 1,330, valuing HCLTech at 17x FY28–29 EPS.

Revenue in line while Margin Beats Estimate; FY27 Guidance Narrowed

* HCLT reported Q2FY27 revenue at USD 3,724 Mn, up 2.0% QoQ and up 2.2% YoY (vs CIE estimate of USD 3,754 Mn). The CC revenue was up 2.3% QoQ & up 2.6% YoY. In INR terms, reported revenue stood at INR 35,620 Cr, up 3.0% QoQ and 11.5% YoY (vs CIE estimate of INR 35,848 Cr).

* EBIT stood at INR 6,465 Cr, up 10.9% QoQ and 16.5% YoY (vs CIE estimate of INR 6,165 Cr). EBIT Margin came in at 18.1% for Q2FY27, up 129 bps QoQ and 77 bps YoY (vs CIE estimate of 17.2%).

* PAT for the quarter came in at INR 5,132 Cr, up 11.0% QoQ and up 21.3% YoY (vs CIE estimate of INR 4,739 Cr).

Broad-based Growth, but Demand Visibility Remains Limited:

HCLTech reported revenue growth of 3.0% QoQ, with broad-based performance across verticals. Growth was led by Retail & CPG (+14.0% YoY CC), Financial Services (+7.1%), Technology & Services (+5.9%) and Manufacturing (+3.9%), while Life Science & Healthcare and TME declined 2.1% each. Software revenue fell 11.2% YoY, partly reflecting lower multi-year licence renewals, despite 7.6% ARR growth. Demand improved towards quarter-end but remains fluid, with spending focussed on AI, data, cloud, cybersecurity and application modernisation. The management revised FY27 revenue growth guidance, to 2.5–4.0% (from 1–4.0%) and Services growth to 3.0–4.0%. We view growth as steady but uneven, with AI-led spending providing support. Guidance midpoints remain broadly unchanged, indicating limited improvement in demand visibility despite broad-based vertical growth.

Margin Expansion Driven by Operational Efficiency and AI Gains; Guidance Retained:

HCLTech reported a strong EBITM expansion of 131 bps QoQ to 18.2%, with adjusted EBITM at 19.0%, driven by Project Ascent and AI efficiency (+73 bps), advanced AI realisation (+32 bps), SG&A leverage (+50 bps) and forex gains (+23 bps). These gains offset higher restructuring cost and HPE Telco Solutions consolidation. AI services command margin 7–10% higher than traditional services, while IP/platform offerings deliver over 70% gross margin, supporting mix-led expansion as monetisation scales up. FY27 EBITM guidance was retained at 17.5–18.5%.

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